Daily Business Report-Feb. 5, 2019
In fighting reforms, the industry says that while their rates may be high, they provide access to credit to higher-risk borrowers who might otherwise not be able to obtain a loan.
Commentary
State law and legislators fail California
consumers on high-interest loans
By Tom Dresslar, Special to CALmatters
The dollar amount of loans made in 2017 by non-bank lenders in California – $347.2 billion – exceeded the entire economic output of 33 states. Yet, state policymakers for years have neglected this massive market.
The lack of care has served well the interests of the lending industry, but left consumers increasingly vulnerable to myriad dangers.
California’s payday lending regulatory structure is feeble. The 2002 law ranks as one of the nation’s weakest, and significant ambiguities in the statute’s language and legislative history have been interpreted to favor industry and harm consumers’ interests.
The result is a market where debt traps ensnare hundreds of thousands of borrowers. It’s a market where, in 2017, consumers paid an average annual percentage rate of 377 percent and lenders earned 70.5 percent of their fees from customers who took out seven or more loans during the year.
For 34 years, California’s non-bank financing law has allowed lenders to charge whatever interest rate they want on consumer installment loans of $2,500 or more.
The statute imposes no real requirements to ensure borrowers have the ability to repay loans before they assume the debt.
Another major defect is that the statute does not require lead generators – entities that connect borrowers with lenders – to be licensed and regulated.
These deficiencies have produced a broken, hazardous market that inflicts widespread harm on consumers. Too often, borrowers get victimized by this scenario:
An unscrupulous lead generator schemes to take the borrower’s confidential personal information. Then, with deficient regard for the borrower’s privacy and financial interests, the lead generator sells the information to lenders who pay them the most money. A lender then uses unfair practices to trap the borrower in a high-cost loan they didn’t want and can’t afford.
In 2017, 47.2 percent of consumer installment loans from $2,500 to $9,999 (351,786 of 745,145) made by state-licensed lenders carried annual percentage rates of 100 percent or higher.
The triple-digit APR ratio for loans in the $2,500 to $4,999 range was 58.8 percent, or 321,423 of 547,002.
For 20 such lenders, 90 percent or more of the loans they made in the $2,500 to $9,999 range carried triple-digit annual percentage rates.
In fighting reforms, the industry says that while their rates may be high, they provide access to credit to higher-risk borrowers who might otherwise not be able to obtain a loan.
That line, invariably swallowed whole by too many legislators, is a decrepit bromide that does not survive serious scrutiny.
The triple-digit annual percentage rate lenders write off as uncollectible astonishing numbers of their loans. Such loans are called charge-offs. Seventeen of the 20 high-cost lenders reported that at the end of 2017 they had a combined 85,142 charge-offs. That total equaled 50.1 percent of their outstanding loans and 64.1 percent of current loans.
Compare those numbers to three non-bank lenders who made no triple-digit annual percentage rate loans. Their combined charge-offs equaled 6.6 percent of outstanding loans and 7.3 percent of current loans.
Few events cause more damage to a consumer’s credit profile than a charge-off.
Lenders report them to credit rating bureaus, and they can remain on a consumer’s credit report for up to seven years. Thousands of customers of high-cost lenders who have their loans charged-off emerge from the transactions with worse credit profiles and less access to affordable credit.
In 2018, it was same old, same old. Bills came before the Legislature to fight payday loan debt traps, impose interest rate caps on consumer installment loans of $2,500 or more, and regulate lead generators. They all died.
Unlike in prior years, however, the Assembly passed the pro-consumer measures. Unfortunately, the Senate held firm as a bulwark for the industry.
In killing the lead generator bill, the Senate stood against consumer advocacy groups and responsible lenders.
The upper house aligned itself with a group of opponents that included: one lead generation company, Zero Parallel, busted by federal regulators for scamming borrowers; another lead generation firm, LeadsMarket, which in a one-month period in 2015 received from a single licensed lender more than $106,000 in payments that violated State regulations; and the Online Lenders Alliance, whose board includes two lenders – Elevate and Enova – among the 20 in California with triple-digit APR ratios of 90 percent or higher, and whose members include another lead generation company, T3Leads, sued by federal regulators for abusing borrowers.
Consumer advocates this year likely will take another run at reform. Given the events of 2018, all eyes will be on the Senate to see if the Legislature finally acts to protect consumers.
Tom Dresslar is a former reporter who served as a deputy commissioner at the California Department of Business Oversight, and helped draft the 2018 lead generator legislation, t.dresslar@comcast.net. He wrote this commentary for CALmatters.
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National avocado distributor acquires
industrial building in Vista for $7.8 million
Del Rey Avocado Company, a Fallbrook-based national avocado distributor, has acquired a 41,944-square-foot industrial building in Vista for $7.8 million. Vista Carlsbad LLC, a private Southern California-based investor, was the seller.
Del Rey Avocado is a family run business based that has been in operation since 1969. It packs California avocados from San Diego to San Luis Obispo.
Located at 1390 Engineer St. in the North County Industrial Park, the freestanding industrial building consists of 3.5 acres, with the ability for outdoor storage. The property had previously been used as a child entertainment center.
CBRE represented the buyer and seller in the transaction.
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Port of San Diego to welcome 2 inaugural cruise calls this week
Two European cruise lines will be making inaugural calls on the Port of San Diego this week. The first vessel to sail into San Diego will be the MSC Magnifica, arriving today.
MSC Cruises is an international cruise line headquartered in Geneva, Switzerland. MSC Magnifica will be visiting the Port of San Diego as part of a 118-day around the world cruise which features stops in two dozen countries. The ship’s transatlantic voyage began in Genoa, Italy and its most recent stop was in Cabo San Lucas. After San Diego, MSC Magnifica will visit the ports of Los Angeles and San Francisco.
MSC Magnifica is 964 feet long and features 16 decks. It has a crew of 1,038 and can accommodate approximately 3,000 passengers.
On Friday, Feb. 8, the German Cruise Line Phoenix Reisen will have its vessel, Artania, berthed at the Port of San Diego. The Artania is approximately 757 feet long and has eight decks. The vessel has a crew of 537 and a capacity for 1,260 passengers.
The Artania is on a 116-day around the world cruise that left Genoa, Italy on Dec. 22, 2018. Prior to arriving in San Diego, the ship will be in Puerto Vallarta, Mexico. Following San Diego, it will sail up the California coast.
Port officials said each homeported cruise (one that begins and ends its voyage in San Diego), has an economic impact of $2 million.
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University Club names Dan Hom
chairman of the Board of Governors
The University Club atop Symphony Towers has named Dan Hom as chairman of the Board of Governors.
When Hom joined the University Club in 1993, he was one of the youngest members. A few years later, he went on to be the youngest board member appointed to the board. Now, he will serve as chairman, succeeding San Diego business leader Douglas Wilson.
Hom will act as the leader of the Board of Governors to the membership and community. His responsibilities include leading board meetings, shaping agendas, representing the board at club functions and overseeing potential succession plans for the club.
In addition to being a small business owner of a public relations and public affairs firm, Focuscom Inc., for the past 13 years, Hom remains active within the San Diego community. He served the local community as a city commissioner and has been involved on the board of directors for organizations such as The Red Cross San Diego/Imperial Counties, Mayor Kevin Faulconer’s Asian Advisory Committee, Chula Vista Police Foundation, Asian Business Association, South Bay YMCA, Pacific Arts Movement that presents the San Diego Asian Film Festival, National Multiple Sclerosis Society and Boy Scouts of America.
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Rady School recruits new executive director
for Master of Professional Accountancy Program
, a business professional with extensive experience in accounting, law, and tax, has joined the Rady School of Management at the University of California San Diego. Deiotte will serve as the executive director of the school’s Master of Professional Accountancy (MPAc) program.
Deiotte’s storied career encompasses a strong background in financial reporting and international tax law. After nearly four decades in the profession, Deiotte retired from Ernst & Young where he served in a number of distinguished roles, including serving as the Sub Saharan Africa Regional Tax and Law leader as well as a senior partner and leader for Ernst & Young’s Central and Eastern European Business Compliance and Reporting practice while in South Africa and Poland, respectively.
He has worked in the U.S. at other leading accounting firms and has a comprehensive education, earning B.B.A., MBA and JD degrees.
Beginning in fall 2019, the Rady School’s Master of Professional Accountancy will prepare students for a wide range of accounting career opportunities that span public accounting firms, corporate accounting departments, and not-for-profit and governmental organizations.
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San Diego soap company sponsoring
driver in NASCAR opening day race
San Diego soap company Dr. Squatch is sponsoring NASCAR driver Josh Bilicki at Daytona International Speedway on Feb. 16 — the opening race of the 2019 season. Bilicki, 23, returns to the Xfinity Series after completing his first full season in 2018.
The 2019 NASCAR Xfinity Series features 33 races across 24 different race tracks throughout the United States. The season starts at the NASCAR Racing Experience 300 at Daytona International Speedway. All races will be televised live on NBC, NBC Sports, and Fox Sports 1.
Dr. Squatch is a soap subscription company.
